Chapter 1

The Problem and its Background

Introduction

In this modern era of rat race, the organizations especially those are in business

nature, obligated to take rigorous measures to ensure the growth and value in the

organization. Outsourcing is defined by Elmuti and Kathawala (2014), as an effort to

make the result oriented partnership with an external agency or service provider, to

perform the activities which were conducted in the organization in a traditional way.

According to Mclvor (2014) the business world and the organizations adopt the principle

of outsourcing to expand their market beyond their national boundaries. So outsourcing

can utilize as a new strategy for the business organization to run their ventures more

effectively. Oshri, Kotlarsky, &Willcocks, (2014) also states that management view

outsourcing as an effective and powerful tool in the strategic management aspect.

According to Elmuti and Kathawala (2014) the private organizations engaged to deliver

a wide range of product and service to maximize the profit is a common practice. For

organizations those are searching for new competitive measures to ensure the growth

and to maintain the competitive edge, outsourcing is a powerful strategy. Outsourcing

helps the organization to achieve its goal through a more effective way with a minimal

usage of the resources.

The other important factor which helps the outsourcing to attain its global

popularity is, most of the time the organizations cannot perform all the business process

internally. Sometimes these process are needed in a temporary basis, to tackle all these

kind of issues outsourcing does help the organization in a great extent. Once the
business process outsourced to an external agency, it become their responsibility to

carry out the task. Outsourcing can categorize in to two different types as BPO and

KPO. BPO in other words Business processing outsourcing and the KPO is the

Knowledge process outsourcing.

According to the survey conducted by the Bajpai and Nirupam from the Earth

Institute Columbia in 2014, describes that the 70% of the organization prefer the

outsourcing to reduce the cost. The other key factors those are contributing for the off

shore outsourcing are access to the global talent pool, access to the global market, give

focus to the core competency, access to the specific advantages of the countries,

improve the quality of the service provided by the organization.(Ghodeswar

&Vaidyanathan 2014; Sharma and Loh, 2014; Aird and Sappenfield 2014). From a

study conducted by Kumar and Eickhof (2014) points towards how outsourcing helps

the organization to gain its desired financial performance.

a) Financial aspects of the outsourcing

One of the main factors which attract the organizations towards outsourcing is its

financial metrics and cost reduction features. Kakabadse and Kakabadse (2014) also

agree that the cost reduction and financial gain even it is for a short term, is the prime

motive for the Western organizations. The other factors or drivers those are mentioned

by the researchers the achievement of the cost efficiency is the most attracted factor so

far. The other commercial factor of the outsourcing is considered it is the employee

related cost. The US banking sector has saved around $8 billion from outsourcing since

2014. (Pai and Basu, 2014). The American business organizations those are

outsourced to India especially the information system, prime motto are to keep the
development and maintenance cost down. Around 79% of the organizations benefitted

from the lower cost of the outsourcing facilities.

b) Access to the Technological advancements

According to Sahgal and Malhotra (2014) point out that, through the globalization

and the technological advancement the business world could create a global work force

blend with the different cultures working towards a common goal. Through outsourcing

the organization could access the global technological advancement in a cheaper way

which is not available onshore.

c) Could focus on Core competency

Outsourcing the non core functions of an organization helps the organization to

focus on its core competency business. But the core competency of an organization is

hard to find and if the organization to fail to define its core business function has a

negative effect through outsource.

d) Access to the global talent

Through the outsourcing the organizations can access to skills and the

techniques from the global talent pool without making huge investment. So outsourcing

helps the small start up business to attract more business through outsource their

business process to the service providers those who have more secure and advanced

technologies.

Statement of the Problem

The present study seeks to find out the advantages and disadvantages of

outsourcing in major aspects of business and finance and how it affects marketability,
income generation and flow of goods in the market.

Specifically, this study seeks to answer the following questions:

1. What is the profile of the respondents in terms of:

1.1 Age;

1.2 Nature of work;

1.3 Civil Status;

1.4 Gender; and

1.5 Length of service in BPO Company?

2. What is the statistical proof and analysis whether the cultural differences resulted

from outsourcing, lead to conflicts in the working environment of the organization?

3. How does outsourcing create difficulties or reduce quality in delivering service to the

customers?

4. How does outsourcing creates or increases stress, anxiety and inter-personal

conflicts in employees in an existing company? and

5. What are the major concerns of the in- house staff, regarding overseas business

outsourcing?

6. What BPO and other outsourcing channels management program can be proposed

based on the findings of the study?

Hypothesis

This study will test the null hypothesis that there is no significant relationship

between the demographic profile of the respondents to their propensity in engaging in

outsourcing in the Philippines.

Conceptual Literature
 Since 1990s the outsourcing has become a hot discussed topic around the world.

It has attracted the business organizations across the globe, those includes large to

small sized organizations. With the benefit like cost reduction, access to new technology

and innovations helps the organizations to improve their financial matrices and business

growth. This force and encourage the organizations outsourced its variety of business

process to sustain in the market. As more and more multinational corporate giants

outsourced some of its core and noncore competency functions, like customer care,

supply chain etc and succeed to make some positive changes as well. Even though the

outsourcing is a boon to the business organization it makes some indifference in the

organizational environment. Through this study the leaner is trying to analyze the issues

and the challenges faced by the employees in the organization from outsourcing and

how the employees perceive the process of outsourcing.

Theoretical Framework

It will be difficult, if impossible to agree with the origin of outsourcing like a

scientific concept or like a practice. The cost theory of transaction ( Williamson, 1985,

1975; Coase, 1937) is referred in relation with outsourcing and therefore an argument

that the roots of knowledge about outsourcing stretch back almost to 75 years.

Some people find it difficult, although is possible, in agreeing that outsourcing is

just a procedure or a scientific idea. The theory of transaction cost(Coase, 1937;

Williamson, 1975, 1985) is often speak in connection with outsourcing as an idea which

had been in use and strongly rooted for the past 75 years . Person – environment fit

theory is another theory, which is developed to study about outsourcing. It was an

outcome of K. Lewin and H. Murray who developed it based on the interaction of

environments of people (Yang, Che, Spector, 2014).

In the opinion of Yu (2014), the theory is helpful in understanding organizational

sciences on the basis of behavior, viewpoint and thinking. A wide range of areas were

taken into consideration in the person-fit researches which included (a) fit between the

environmental demands and the ability of the individual (b) fit between the

environmental resources available and the needs of the persons. (c) Fit co-relation

between the values of the individual and the values of the organization.

Yang et al. (2014) stated that person environment fit theory came into formation

through the inclusion of many other researches and conclusions.

A. Theory of Transaction-Cost View

On the basis of transaction-cost theory the decision on outsourcing or

internalizing the process depends on the cost occurred during the process of production

and transaction determines (Williamson, 1975). The transaction includes the following

dimensions: the number of transactions, uncertainty, and the level of specification of

asset. The firm decides to outsource the business process, if all the mentioned

dimensions of transaction are found considerably low (Mahnke et al., 2014).

The contract signed between the vendor and the client should be a detailed and

a crystal clear contract because there are chances for exploitation which we need to

avoid as per the mentioned approach (Lacity and Willcocks, 1998; Poppo and Zenger,

2014). But on the other side it may also lead to opportunism or mistrust (Ghoshal and

Moran, 1996). Such over emphasis also affect badly with regard to vendors.

B. Person environment fit theory

The person environment fit theory highlights the level of sameness among a
person or persons and environmental features. The features of an individual consist of

values, nature and capabilities and in the same way the features of environment include

some physical conditions, cultural standards and its resources. The study attributes that

a person’s conduct or perspective are in relation with the level to which surrounding is

apt and better fit (Hardin & Donaldson, 2014). The conclusion is that the employees are

happier if the features among the persons and environments are equal. The above

theory is helpful in exploring job-oriented stress, work satisfaction, turnover, emotional

and physical wellness. The mentioned theory is often used in stress related researches

since it aims at person’s adjustments to job conditions than regular approaches. The

studies show that the strain hikes although the workers expect favorable conditions as

all prefer to in every job area (Warr & Inceoglu, 2014). The person-environment fit

theory explains the misfit among the employees and their work locations, is a major

cause for the strain that may cause mental or physical up normality’s of workers.

Research Paradigm

This study will use the IPO method. For the input, data involving the

demographics and profile of the respondents shall be used. The study shall also use as

input all the necessary responses of the respondents in terms of their reasons as to why

they think outsourcing is relevant and is an important economic and marketing tool, how

frequent and what pattern to they employ in order for them to be able to choose what

type of outsourcing is fit for a specific channel or industry.

For the process, an analysis of the significant relationship between the profile of

the respondents and the reasons as to why they engage in outsourcing shall be

adopted.
 Finally, as the output of this research, the researchers will try to come up with

proposed plans on how to improve the overall outsourcing experience of the

respondents in the Philippines.

Input Process Output

• Determining the •Data gathering through •Propose activity about

reasons of engaging in questionairre. improving the system
outsourcing and mechanism of
•Data Analysis outsourcing in the
 Profile of the Philippines.
Respondents

Scope, Limitation and Delimitation

This study is a formal enquiry on what factors and motives encourage industries

to take their businesses on a whole new level and risk in the innovative area of

outsourcing. The study will cover only present businesses in the Philippines who have

at least experienced levelling up their industries thru outsourcing. The outsourcing

employees and employers based, working and operating in the Philippines shall be the

sole subjects of the study.

The study will not cover other industries not related to outsourcing, neither will it

consider as respondents who have not worked or experienced being engaged in

outsourcing.

The sole purpose of the study is to determine their reasons for outsourcing, and

its relevance to modern day marketing and no other facets of their daily human lives

and all other factors that may influence businesses’ failure or success in the economic

sense.

Significance of the Study

The study will what motivates travelers to engage in their sojourn and what

activities are needed to be done as proposals in order to improve the overall travelling

experience of the respondents.

This study will benefit those who are concerned with research functions as well

as those involved in the administration and improvement of outsourcing-based

programs to entice employees to engage in the outsourcing industry. They may be

provided insights on how to promote sustainability on the area of BPO in general and in

the employment planning of the BPO industry in the Philippines.

Department of Labor and Employment. This study will help the institution to

make amendments and rulings about outsourcing-based employment modules to give

the education system a better curricular understanding of what factors motivate people

to engage in outsourcing and what can be done to improve both the employees’ and

employers’ rights to make outsourcing prosper in the Philippines and to serve

stakeholders better.

Outsourcing administrators. This will help them to become more aware of the

effects of their outsourcing-based industry. This may motivate them to re-evaluate their

outsourcing planning and capability concerning the outsourcing-based programs and

they may be encouraged to effect innovations to make their programs responsive and

relevant, effective and efficient in relation to their organizational needs and goals. They

may be motivated to find ways to enhance the value of outsourcing-based plans in their

respective companies.

Researcher. This will help the researcher to understand what outsourcing-based

planning is all about and how it can help all relevant stakeholders to achieve and

develop interpersonal, intrapersonal and understanding skills with competence.

Future researchers. This will help the future researchers as source for their

research if they decide to relate their study outsourcing plan towards innovation and

creativity. The findings can also help them to find new attributes relating to outsourcing -

based models that may be applied by growing businesses here in the Philippines.

Definition of Terms

The following terms are defined in this study with their lexical and operational

definitions:

BPO (Business Process Outsourcing) - In BPO service the organization can

outsource a particular process task those are either front office or back office in nature.

The front office functions means those are customer oriented in nature for example

answering phone call, marketing and technical supporting etc. The other business

functions like purchasing, billing; payroll is fall under the category of the back office

functions. Some of the common businesses outsourcing functions are Call centers,

multimedia and animation related work, book keeping, data entry, medical billing and

transcriptions etc.

KPO (Knowledge process outsourcing) - Unlike BPO services, those are

carried out standardized business process for their clients, KPO or knowledge process

outsourcing deals with the work those are need high level of the involvement from their

employees. In the KPO outsourcing the employees need to show more advanced level

of the analytical and technological skills and techniques in order to make the decisions.

The example for the KPO outsourcings are the research and development in the

pharmaceutical fields, intellectual and patent related research, animation related work,

research and analysis of the data, content writing and legal series.

ITO (Information Technology Outsourcing) - The other type of outsourcing

apart from the BPO and the KPO are the ITO or Information Technology outsourcing.

The Information Technology Outsourcing can describe as the process of seeking the

resources outside of the organizations structure to carry out all or part of the information

technology function. The IT outsourcing functions can range from infrastructure for the

software development to the maintenance and the support of the software functions

includes. The main reason for the IT outsourcing is the cheaper to outsource these

functions to the third party rather than develop and maintain an in-house system for the

IT management.